What is an appraisal?
An appraisal is an unbiased estimate or opinion of what a buyer might expect to pay - or a seller to receive - for a parcel of real estate, where both buyer and seller are informed parties. To be an informed party, most people turn to a licensed, certified, professional appraiser to provide them with the most accurate estimate of the true value of their property.
What steps are involved in an appraisal?
To begin the appraisal process, the appraiser will come out to inspect the property. The inspection typically includes photographs of the property, a sketch of the dwelling(s) to ensure the correct square footage and room layout. Also, the appraiser looks for any obvious features, or defects, that would affect the value of the house.
Once the property data has been collected, the appraiser uses the appropriate approaches to value to determine the value of real property: a cost approach, a sales comparison approach and, in the case of a rental property, an income approach.
The Cost Approach – this is what it would cost to replace the improvements, less physical deterioration and other factors, plus the land value.
The Sales Comparison Approach – this involves making a comparison to other similar, nearby properties which have recently sold. The Sales Comparison Approach is normally the most accurate and best indicator of value for a residential property.
The Income Approach – this is of most importance in appraising income producing properties. It involves estimating what an investor would pay based on the income produced by the property.
Reconciling the data to obtain an opinion of value:
After combining information from all applicable approaches, the appraiser is then ready to form an opinion as to the estimated market value for the subject property. It is important to note that while this amount is probably the best indication of what a property is worth, it may not be the final sales price. There are always mitigating factors such as seller motivation, urgency or ''bidding wars'' that may adjust the final price up or down. But the appraised value is often used as a guideline for lenders who don't want to loan a buyer more money that the property is actually worth. The bottom line is: an appraiser will help you get the most accurate property value, so you can make the most informed real estate decisions.